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Tax committee recommends review of gold mining tax

South Africa should review a preferential tax enjoyed by gold producers, a commission set up to look into taxes said in a report published on Friday.

The Davis Tax Committee said most mining companies were taxed a standard 28% corporate income tax rate but taxes paid by gold firms are linked to their profit margins, a measure meant to cushion an industry facing its sunset years.

The commission, established by the Treasury, did not say how it wanted the current tax regime for gold firms to be changed but said it would issue a separate report on mining taxes.

"Given that gold mining is a declining industry, it may be worth reviewing whether the favourable tax treatment accorded to gold and uranium mining is still justified," the report posted on the commission’s website for public comment said.

The South Africa Chamber of Mines said the average tax rate paid by gold producers affiliated to it in 2014 was 25%. "When mines are very profitable they pay high taxes, but when they are marginal they pay less in order to ensure they survive," said the Chamber’s economist Monique Mathys.

"Changing this to a flat rate could threaten the viability of some mines which would not be in the interest of the country." Another industry official said gold producers with a profit margin of less than 5% do not pay corporate tax.

Sliding bullion prices and surging costs are hitting an industry that laid the foundations for South Africa’s economy but has been slowly dying as ore grades decline and shafts reach depths of 4km, the world’s deepest.

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